Insights 
VT 
Key Points:
- GBP/USD falls to 1.3607 after peaking at 1.3681 earlier in the week
- Traders expect a 25bps BoE rate cut in September, but fiscal concerns dominate sentiment
The British pound declined sharply on Monday, falling to $1.3607, its lowest level in two weeks. The pair had previously touched 1.3681 before turning lower, dragged down by market concerns over the UK’s budget outlook and political shifts within the Labour government.
Chancellor Rachel Reeves warned in an interview with The Guardian that tax hikes may be on the table in the autumn budget. While she avoided committing to a rate, the suggestion alone added pressure to the pound, as investors fear the economic drag of rising tax burdens.
Labour’s Policy Retreat Sparks Uncertainty
In addition to budget tensions, Labour’s recent reversal on welfare reform has further unnerved markets. Reeves admitted there were “costs” to the concessions made to avoid internal dissent. These developments have prompted speculation about future fiscal tightening—either through cuts or increased taxation—further cooling investor confidence in UK assets.
The pound’s decline reflects waning appetite for sterling-denominated instruments in the face of policy instability.
Monetary Policy Outlook Remains Dovish
Despite fiscal concerns, rate expectations have remained stable. Markets are still pricing in a 25-basis-point cut from the Bank of England in September, as inflation data softens and the broader UK economy struggles for momentum.
However, the falling pound could complicate matters. Further depreciation might import inflation through higher import costs, challenging the BoE’s path toward easing.
US Tariffs Add External Pressure
Compounding the domestic issues are escalating global trade tensions. President Donald Trump confirmed that reciprocal tariffs will be reintroduced from August 1, reverting to levels seen on April 2 for countries without formal trade agreements.
Treasury Secretary Scott Bessent added that partners yet to finalise a deal will face higher baseline rates. Trump also hinted at a 10% punitive tariff on nations that support “anti-American policies of BRICS,” further fuelling risk-off sentiment in global currency markets.
The US dollar, already buoyed by strong jobs data and fading Fed rate-cut bets, continued to firm, dragging cable lower.
Technical Analysis
Cable extended its downside correction, slipping to an intraday low of 1.36028 as bearish pressure accelerated from the recent swing high of 1.36815. The pair remains firmly below its 5, 10, and 30-period moving averages, all sloping downward and reinforcing a short-term bearish trend.
Picture: GBPUSD dips below 1.3610 as downside momentum builds. Support eyed at 1.3580, as seen on the VT Markets app
The MACD continues to deepen below the signal line, with a widening histogram in negative territory—pointing to ongoing downward momentum. Unless 1.3620 is reclaimed soon, further losses toward 1.3580 could be on the cards. Traders may also be watching for a potential reversal if MACD shows early signs of divergence.
Policy Signals Take the Driver’s Seat
With the autumn budget now in focus and the BoE looking dovish, GBP/USD could continue to trade under pressure in the short term.
Unless there’s clarity on tax policy or positive labour market surprises, the pound may struggle to reclaim the 1.3680 level. Traders should also watch for any adjustments in US tariff policy heading into August 1, as that could further strengthen the dollar and weigh on cable.
